Siebel v Salesforce — Lessons from the Death of a Tech Goliath

Yesterday, Fortune.com posted an article I had been contemplating writing for several years.

It was a point of view story on the collapse of Siebel Systems and the rise of Salesforce to become the global leader in CRM. Well, at least a large portion of the CRM market.

In case you didn’t see the Fortune article, click here to read it. When you have finished, come back and the following narrative might add some color as they had to edit down the original and it lost a few points I had wanted to make.

Ok. You are back.

So, why did I write the article?

Tom Siebel built one of the most incredible technology companies and recruited some of the best people I have ever worked with. Many of those people have gone on to do some great things, not the least of which is to occupy senior roles at Salesforce – taking with them the lessons learned while they were at Siebel.

I felt someone needed to set the record straight in honor of all those former Siebel employee contributions. Since I was there as part of the inner Siebel senior executive circle, and still working, I was the most likely candidate to do it.

Fortune was kind enough to print it.

On the whole, I received positive feedback for writing the article. I didn’t run it by Tom in advance and I don’t even know if he’s read it. I do know one thing, he never would have written or authorized it because that isn’t the type of person he is. He has moved on and is doing some great things with his new company, C3 Energy.

So, now that the article has had a chance to be read and commented on, I want to make a couple additional points.

If you read the comments below the Fortune article — you have to scroll down to see them — one person didn’t  seem to internalize some points I tried to make. He essentially restated that, of course, it was a David v Goliath story and Salesforce crushed Siebel.

So, I would like to offer up the following logic flow and see if you either agree with him/myth or with my conclusions.

Fact: While Siebel started out as an enterprise SFA solution, by 2000 the majority (70%) of its revenues were from its Call Center product line.

Ask yourself, when did Salesforce deliver its first Call Center product – Service Cloud – into the market? Answer: 2010.

When was Siebel acquired by Oracle? Answer: 2006.

So, in 2006, if the majority of Siebel’s revenue came from its Call Center product line and Salesforce didn’t have a Call Center offering until 2010, how could Salesforce have had much, if anything, to do with Siebel’s demise? Answer: It didn’t.

I have provided the facts. It is up to you to decide whether to accept them or not.

To be clear, the point of my article wasn’t to take away anything Salesforce has done. It has revolutionized the way in which software is developed and delivered. It has continued to grow year after year generating significant shareholder returns (full disclosure: I own shares of Salesforce in my personal portfolio). So, if that is what you read into the story, I missed the mark.

I do want to end by thanking all the former Siebel employees for their contributions in helping to make Siebel the success it became and for the great work experience I had from 1996-2006.

Like Tom, I am now on to other things. I have said my piece.

 

 

 

 

  • lisa

    You mention that Siebel was highly penetrated in Telco and the downturn had an impact on sales in that vertical. Was competition from Amdocs (clarify)also a factor?

    • http://www.interwest.com/software-as-a-service/ Bruce Cleveland

      Amdocs, at the time, wasn’t too much of a factor — Siebel did not have a carrier grade billing/order mgmt solution so we didn’t compete for that business. And, Amdocs didn’t yet have much call center technology as it was still integrating its acquisition of Clarify and Siebel never had too much trouble competing against Clarify — hence its acquisition by Amdocs.

      That said, you raise a good point I didn’t make in my article.

      Amdocs, SAP, Oracle all had “mission critical back-end solutions” that had to be staffed and maintained. They “weathered” the storm of the 2001 recession. Many of Siebel’s implementations were just underway and therefore considered open to cut.

      • Kenshiro70

        Honestly, Clarify had been so badly damaged by the Nortel acquisition that it disappeared as a competitor for Siebel (I was in the Service Products team at Siebel.) It took them a while to recover. What had greater impact was the rise of outsourced call centers offering turnkey services, which looked very desirable during the downturn. Of course, that has boomeranged in more recent years as companies realize that more knowledgeable service in-house is a competitive advantage for their brand, but it had an undeniable impact at the time.

  • Ken Laversin

    Bruce. Very interesting article. Having worked at Siebel from 1998 until the Oracle acquisition, and then having sold and managed teams that sold the Siebel stack to Telco’s at Oracle for a few years after the acquisition, I appreciate your view. A couple of additional points that resonate in my mind; interested in your perspective as you were much closer to it than I was.

    In 2000, Siebel launched sales.com. This was truly the first SaaS CRM application in the market. My hypothesis has always been that the Global recession in 2001 caused Siebel to give up on this product line because it didn’t really produce any revenue at the time, and the pressure to deliver quarterly earnings numbers forced Siebel to shut down this non-profitable business. Siebel had to focus on making the quarter and it was difficult to invest in long term strategic initiatives during this downturn. SFDC on the other hand was not public at the time, and could focus on its long term business plan of building SaaS applications to move up market. This, coupled with Oracle’s strategy to stop investing in the core Siebel product after the acquisition, and Oracle’s now questioned move / inability / unwillingness to invest in SaaS at all until 2011 (which it eventually did and built a far inferior product to SFDC), are the major drivers in shift in power from Siebel to SFDC in my mind.

    I now run Global Sales for Jasper wireless, the market leading SaaS connected device platform for the IoT and M2M markets, and I still see that majority of the global telco operators

  • RV

    Is the movement of call centers to India a big factor in Siebel not able to recover as they didn’t use Siebel Call Center software

  • Ken Laversin

    Bruce. Very interesting article. Having worked at Siebel from 1998 until the Oracle acquisition, and then having sold and managed teams that sold the Siebel stack to Telco’s at Oracle for a few years after the acquisition, I appreciate your view. A couple of additional points that resonate in my mind; interested in your perspective as you were much closer to it than I was.

    In 2000, Siebel launched sales.com. This was truly the first SaaS CRM application in the market. My hypothesis has always been that the Global recession in 2001 caused Siebel to give up on this product line because it didn’t really produce any revenue at the time, and the pressure to deliver quarterly earnings numbers forced Siebel to shut down this non-profitable business. Siebel had to focus on making the quarter and it was difficult to invest in long term strategic initiatives during this downturn. SFDC on the other hand was not public at the time, and could focus on its long term business plan of building SaaS applications to move up market. This, coupled with Oracle’s strategy to stop investing in the core Siebel product after the acquisition, and Oracle’s now questioned move / inability / unwillingness to invest in SaaS at all until 2011 (which it eventually did and built a far inferior product to SFDC), are the major drivers in shift in power from Siebel to SFDC in my mind.

    I now run Global Sales for Jasper wireless, the market leading SaaS connected device platform for the IoT and M2M markets, and I still see that majority of the global telco operators

    • http://www.interwest.com/software-as-a-service/ Bruce Cleveland

      Ken: I think you have it pretty well layed out. Couple things that are slightly nuanced. Tom was worried that if we made Sales.com too functional, it would cannibalize our core business and the product as it was executed was too incomplete. So, we shut it down. We gave USVP its money back as sn investor in that business.

      Marc B was unencumbered as you point out and could grow a pure SaaS model. And, that model has proven to be a better consumption model for B2B software as we all now know.

  • Guest

    ……..”So, in 2006, if the majority of Siebel’s revenue came from its Call Center product line and Salesforce didn’t have a Call Center offering until 2010, how could Salesforce have had much, if anything, to do with Siebel’s demise?”……

    Clearly Siebel saw SFDC in its rear view mirror (see press release below). Unfortunately, Siebel’s executive team reacted toooooo late, no?

    SAN MATEO, Calif.–(BUSINESS WIRE)–Oct. 15, 2003

    Siebel Systems, Inc. (Nasdaq:SEBL), the leading provider of customer relationship management (CRM) solutions, today announced that it has signed a definitive agreement to acquire UpShot Corporation, a pioneer in delivering hosted CRM service over the Internet, in a cash transaction valued at up to $70 million. Under the terms of the deal, $50 million will be paid in cash upon closing, with potentially an additional $20 million to be paid in earn-outs during 2003 and 2004. The board of directors of each company has approved the acquisition, which is subject to customary closing conditions.

    • http://www.interwest.com/software-as-a-service/ Bruce Cleveland

      Actually, in 1999, we built a product called Sales.com to go after the low end of the market where until that point we had not had much, if any interest.

      Unfortunately, we intentionally crippled the product and positioned it as a “sales portal” so it didn’t impact our Enterprise business. That was a mistake and we ended up quickly shutting it down.

      A year or so later we realized we had to create an SMB product simply to ensure Salesforce didn’t come in from SMB to enter our Enterprise market. We created a product called Siebel CRMOnDemand (today it is a $400M+ product line for Oracle) and then subsequently in 2003 did an “acquihire” via UpShot — to bring in people who actually knew the SMB market and how to build/sell an on demand product; we didn’t call it SaaS then.

      So, while we made some mistakes in our execution and market strategy, I actually think we reacted in plenty of time. The bigger lesson for me is that I found it is very difficult for companies to change their DNA. We were an enterprise company — built to create products for and to go to market in the enterprise. Shifting to the SMB required different products and a different go to market skill set. Not as easy to do as you might think — just as Salesforce is finding out as it transitions into selling into the Enterprise and finds itself having to hire Oracle people into its executive and management ranks.

      According to Gartner in 2013, Siebel still owns 85% market share in the enterprise Call Center market — even after 8 years since we sold the company to Oracle. So, that tends to prove my point that a) we were a Call Center company and b) it is hard for any company to simply enter a new market irrespective of its control of another.

      If you ask around internally within Salesforce, and get them off the record, I think they would admit that transitioning from a company that was built to sell into SMBs and small divisions of enterprises, and moving into big enterprise has not been smooth sailing.

      Not faulting Salesforce at all — this issue is pervasive and the subject of many Harvard Business School case studies.

      • Guest

        I agree 100% that moving from SMB to Enterprise is a different monster. I co-founded a company also in 2001 that (initially) targeted the SMB market. In fact, the company was in the Call Center technology market and went public couple weeks ago.
        We targeted the SMB cause the Enterprise market was gone. When dealing with SMB market many times the decision maker for the business was the person on the phone. While the SMB market certainly does offer it share of challenges it also offers a company the ability to generate traction, iterate product quickly and more importantly revenues.
        Something interesting has occurred in the market the past three years. Large enterprise call center players such as Genesys that have dominated the Enterprise call center global market for a decade+ are now going downstream. This is being done through a series of acquisitions that *solve* their issues (of course integrating is a different issue). While on the other side of the equation you have the early On Demand/SaaS/Cloud call center companies (i.e. Five9, inContact) winning large(r) Enterprise deals now. The legacy call center providers are being forced to go down stream while the cloud payers are going upstream into large deals.
        I can’t speak for what Oracle (Siebel & RightNow) are doing now. But, folks in the contact center industry tell me that the lions share of call center integrations deals now go with SFDC.
        Siebel had a terrific run and minted money for many years. But, the market crash of 2000 and the relentless SFDC marketing machine was the beginning of the end. imo

        • http://www.interwest.com/software-as-a-service/ Bruce Cleveland

          The entire point – the reason I bothered to write the Fortune article in the first place – was an attempt to put an end to the popular “urban myth” around Siebel and Salesforce.

          Unfortunately, the facts – and I attempted to stay purely with facts v opinion – as I personally observed them as a member of the founding Siebel executive team – don’t line up with everyone else’s opinions. And, that is what creates controversy, etc.

          What might have happened with Salesforce’s relentless marketing machine is purely speculative (remember, Siebel had a pretty big marketing machine of its own — in fact, much bigger than Salesforce’s from 2000 – 2005).

          I never said that there wouldn’t have been a big collision between Salesforce and Siebel. All I am saying is that in 2005, that collision never happened. We were in entirely different market segments by and large, selling entirely different product offerings.

          You are entitled to believe what you want to believe on what might have happened; you may be entirely right…but no one will ever know. The facts as I have presented them through 2005 are documented and irrefutable.